The South African Renewables Initiative (SARi) and the South African National Energy Research Institute (SANERI) made presentations to a joint-sitting of the Portfolio Committee on Science & Technology and the Portfolio Committee on Energy.
SARi presented its long-term financing model which had the objective to develop a critical mass of investment in renewable energy without imposing unacceptable incremental cost to the country. Its focus was on low cost loans and financial risk mitigation instruments, as well as on funding the gap through a combination of international grant and modest domestic contribution. Its funding strategy was to bring down the cost of capital for renewable energy; provide additional funding for the Renewable Energy Feed-In Tariff (REFIT) programme and create 40 000 to 54 000 jobs per year by 2020-2025. Other benefits would be enhanced energy security, industrial development opportunity, competitive exports and reducing carbon GHG emissions growth. The net domestic cost burden would be relatively small, with tax revenue from investments and associated labour income approaching fiscal neutrality over time. Strong domestic policy coordination and ongoing cooperation with National Treasury, Department of Trade & Industry and the Department of Energy was crucial for success of SARi.
Members asked how the SARi staff component was contracted; how SARi was funded, how much funding it received and how long it had been in existence; if SARi benchmarked renewable energy against the current price of coal; for more information on the long term impact of the capital cost of technology for renewable energy on the country; if the long term-financing model had accounted for a potential decrease in the cost of technology over time; if the cost of alternative energy sources would be cheaper than conventional energy sources by 2040; for clarification on how SARi determined the low cost funding benefit of renewable energy; what impact SARi would have on the ordinary consumers; if pricing would be consistent within the current trajectory parameters; and how nuclear, coal-fired plants and renewable energy would be prioritised so as not to put a price burden on the consumer.
Members also asked if the government departments were working together with SARi; what role Eskom played with regard to renewable energy; whether SARi expected the Integrated Resource Plan (IRP) to be altered to accommodate a greater contribution of renewable energy and renewable technology to the energy mix; if the Independent Systems Market Operator (ISMO) Bill would have an effect on pricing for renewable energy; what SARi’s role was in developing the Smart Grid Low Carbon Stimulus; and what time frame was expected for implementation of the SARi project.
Members required clarification on whether the private sector renewable energy generators’ would get a similar electricity price to that of coal-based Independent Power Producers but with a significantly reduced cost of capital. They were also concerned that while the IRP could be changed over time, it would be difficult to get out of signed contracts and procurement. With so much uncertainty about costs, energy demand and breakthrough in new technology, it was important that energy policy flexibility was maximised. It appeared that renewable energy options would provide flexibility.
SANERI outlined the highlights of the Annual Report and Financial Statements for 2010/11. The Carbon Storage Atlas had been published and distributed to depict South Africa’s potential for storage of 400 million tons of carbon dioxide per year; the Wind Atlas had also been produced together with CSIR to depict the three wind regions in the country; and the African Energy Efficiency Centre was engaging with international partners and CSIR on energy efficiency in South Africa and the application of technology on the African continent.
SANERI was working together with Eskom on a position paper to establish key areas for strengthening the grid to be able to absorb various resources onto the grid. The supply type and consumer request would influence the resource options that would be made available on the grid.
The Centre for Carbon Capture and Storage (SACCCS) Steering Committee had approved implementation of SANERI’s work plan and Sasol was voluntarily participating in research in Norway, examining various carbon capture technologies. Transportation of carbon via pipeline, tankers, boat or land and injection into aquifers to underground reservoirs were further processes which were being examined.
The Centre for Energy Systems Analysis and Research was a partnership between SANERI, University of Cape Town and University of Pretoria to ensure that the Department of Science & Technology (DST) and Department of Energy (DoE) had access to necessary energy information.
Other highlights included the Green Transport Projects in Midrand and establishment of the Compressed Natural Gas filling station Langlaagte. Also, the Working for Energy Programme (WFE) played an important role in job creation as well as understanding energy components for REFIT.
Financial performance had exceeded expectations and the full budget had been utilised optimally. An issue around whether SANERI would be liable for outstanding VAT from 2010 and preceding years would be decided by SARS in the current year.
Members asked for clarification on the irregular expenditure; how students qualified for bursaries;
why SANERI existed; if SANERI added value to all the collated research performed elsewhere; why it was not part of the plethora of institutions conducting and promoting research; why it was established as a private company under CEF and not a non-profit organisation or agency; and how the South African National Energy Development Institute (SANEDI) would be supported.
Members also asked how SANEDI was involved in the Integrated Energy Plan (IEP) in terms of providing modeling capacity; if a safety assessment on carbon storage had been conducted; and if storage of energy in the case of massive deployment of renewable energy had been considered. Members were felt that the role of the institution, its relationship to other research institutes, how it operated and funded research required in-depth review. According to the Act, SANEDI should govern all components of energy in South Africa and the budget for funding the institution should be aligned to its function. They were also concerned that energy agencies were not aligned according to the National Energy Act and this would need to be addressed.
Dr Edwin Ritchken, Strategic Projects Advisor: Department of Public Enterprises, presented the South African Renewables Initiative (SARi) to the Portfolio Committee on Science & Technology and the Portfolio Committee on Energy. He said that green economy required building bridges between climate, energy and industrial policy and SARI’s objective was to design and facilitate the establishment of long-term financing arrangements required to enable a critical mass of investment in renewables to be developed, without imposing unacceptable incremental cost to the country. Its focus was on low cost loans and financial risk mitigation instruments as well as funding the gap through a combination of international grant and modest domestic contribution. It also involved international design collaboration to develop implementable partnerships.
SARi’s funding strategy was to bring down the cost of capital for renewables; provide additional funding for the REFIT programme and create 40 000 to 54 000 jobs per year by 2020-2015. Other benefits associated with SARi were enhanced energy security, industrial development opportunity, competitive exports and achievement of Copenhagen commitments through reducing carbon GHG emissions growth. The net domestic cost burden would be relatively small, with tax revenue from investments and associated labour income approaching fiscal neutrality over time. According to IISD analysis, in 2020 R85 billion of South African energy intensive exports would be vulnerable to the threat of R2.7 billion of carbon border tariffs.
SARi was mandated by Cabinet and was adopted as part of IPAP and the Climate Response Strategy. Strong domestic policy coordination and ongoing cooperation with National Treasury, Department of Trade & Industry and the Department of Energy was crucial.
Ms M Shinn (DA) asked how SARi was funded, how much funding it received and how long it had been in existence.
Dr Ritchken replied that SARi was a government project funded through the Department of Public Enterprises, Employment Creation Fund and the European Climate Foundation Fund. It had been in existence for two years.
Mr P Smith (IFP) asked if SARi benchmarked renewables against the current price of coal, assuming that Eskom’s prices would continue to increase.
Dr Ritchken replied that there were large volumes of research literature on understanding technology curves and their impact on energy efficiency. After much research, SARi had developed MAC 1 and then adapted it to MAC 2 as congruently as possible with the institutionally recognised IRP document against which the price of renewable energy was benchmarked.
Mr Smith asked for more information on the long-term impact of the capital cost to the country of technology for renewables and if the long term financing model had accounted for a potential decrease in the cost of technology over time.
Dr Ritchken replied that the cost of renewable energy depended on what renewable was being discussed. Wind technology was relatively mature in terms of technological efficiency but technology for concentrated solar power was not mature and curves were steeper. What made energy planning difficult was that currently there were major global efforts to develop new technologies and an amount of uncertainty existed as to whether breakthrough technology would be developed. The nuclear decision, for example, involved an 80-year commitment, but a decision had to taken.
Mr S Motau (DA) asked if the departments were working together with SARi.
Dr Ritchken replied that a certain amount of healthy tension existed. With new paradigms and integration of the Departments, there was invariable a certain amount of tension.
Mr Motau asked what role Eskom played with regard to renewable energy.
Dr Ritchken replied that the decision on Eskom’s role with renewable energy would be made by the Minister of Energy. SARi’s concern was that particularly in Africa, Eskom played a role in enabling the development of a generation of renewable energy beyond South Africa’s borders. SARi would be looking into this matter.
Mr L Greyling (ID) asked for clarity on whether SARi expected the IRP would be altered to accommodate a greater share of renewables and renewable technology contributing to the energy mix.
Dr Ritchken replied that the IRP was a living document. Once the costs of the renewable energy and what the economy, fiscal and consumers could bear, a technical decision would be made. Based on analysis, the renewable share would increase.
Mr Smith asked if he understood correctly that the cost of alternative energy sources would be cheaper than conventional energy sources by 2040.
Mr D Ross (DA) asked what impact SARi would have on the ordinary consumers; if pricing would be consistent within the current trajectory parameters and how nuclear, coal-fired plants and renewable energy would be prioritised so as not to put a price burden on the consumer.
Dr Ritchken said that with 25% of people unemployed in the country, if renewable energy was seen as placing a significant threat on the fiscus and consumers, there could in all likelihood be a serious backlash. The country needed job creation, poverty alleviation and economic growth, not ‘to save the world’ and decreasing the competitiveness of the economy. The logic behind the design for domestic contribution was in such a way that renewable energy would not impact on the price of energy whatsoever. It made sense that South Africa should rather develop renewables (such as biofuel for SAA) and reduce its carbon emissions and thereby reduce the burden of carbon emission tax.
Mr M Nonkonyana (ANC) asked if SARi interacted with the South African Science Institutes and higher learning institutes.
Dr Ritchken said that SARi was still in design and financing phase, with the DST and DTI steering the project.
Dr Wosely Barnard, Chief Director, Integrated National Electrification Programme (INEP), Department of Energy, added that the current IRP supported various documents but was not caste in stone. It was important that South Africa took the low carbon footprint road - with renewable energy emphasis for security and supply. It was also important to make Members aware that in the global context, for the energy industry, the time between technology break-through to full implementation (the s-curve) was 50 years. In comparison, the IT industry s-curve was only 5 years.
The Chairperson asked for clarification on the meaning of efficient components of energy.
Dr Ritchken replied that in his presentation he compared the economic aspects of nuclear renewables versus other forms of energy generation. The efficiency components of energy did not fall under his domain.
The Chairperson asked for clarification on how SARi determined the low cost funding benefit of renewable energy.
Dr Ritchken said that the low carbon option was at risk for two reasons: one risk was that it seemed to be expensive in light of national priorities such as poverty and unemployment and the second risk was that it was being introduced in drips and drabs according to what appeared to be affordable but without the critical mass required for development of the manufacturing and technology.
The fundamental benefit of the funding solution was that through enhancing the comparative advantage of renewables - by introducing them at scale through localisation that would enable the development of manufacturing industries and technology without imposing a cost burden on consumers and fiscus and without conflicting with other national priorities, the cost of financing would be reduced.
The Chairperson asked what SARi’s role was in developing the Smart Grid Low Carbon Stimulus and what its view was on Eskom’s budget up until 2017 to develop carbon-base infrastructure.
Dr Ritchken responded that SARi was not involved in development of the Smart Grid, which was an Eskom programme. SARi kept tight focus on financing mechanisms.
SARi’s strategy was linked to the IRP grid-based generation of energy. Its role was to provide support for the introduction of renewable energy to the grid. SARi unfortunately could not comment on renewable energy which was not connected to the IRP grid. From a social-justice point of view, SARi’s view was that overseas funding should go to solar water geysers in rural areas on a huge scale to alleviate poverty.
In collaboration with Eskom, SARi was interested in cooperating with international funders to accelerate the renewable energy portfolio in neighbouring countries. Since the country was experiencing energy scarcity, introducing renewables to the grid was not likely to threaten Eskom’s Medupi power plant.
The Chairperson asked how SARi was placed within the DoE.
Mr Ritchken explained that SARi was the name of an inter-departmental project and was not an entity. Its purpose was to introduce finance mechanisms to introduce renewables at scale. It was steered by the DoE and the Department of Trade and Industry. WWF assisted with project management and other teams provided input. It was responsible for embedding of capabilities into the Departments of Energy and Trade and Industry, as well as National Treasury. It was not a permanent institution.
Mr Greyling said that his concern was that although the IRP could be changed it would be difficult to get out of contracts and procurement. His conclusion on energy policy over the next 20 years was that flexibility had to be maximised. There was so much uncertainty about costs, breakthrough in technology and even the energy demand - the price increases in electricity may result in a drop in energy demand. Renewable energy options provided flexibility and also could also be brought on quickest when required.
Mr Greyling asked for clarification on whether the private sector renewable energy generators’ takeoff agreement would be that these energy manufacturers would get a similar electricity price to that of coal-based IPP but the cost of capital would be significantly reduced.
Mr Ritchken replied that there were two sources of funding: concessionary loans and risk guarantee instruments which would bring down the cost of capital; and grants which would provide subsidies to the cost of renewable energy over time. Depending on the quantity of grants and availability of the concessionary loans, a certain amount of energy could be purchased.
The implementing mechanism was relatively simple. The available capital facility and its accompanying debt level and capital cost with the given risk guarantee would be pitched to the market for their proposals. Based on the proposals and the amount of grants, a certain amount of energy would be able to be secured.
Mr Motao asked what time frame was expected for implementation of the SARi project.
Mr Ritchken replied that SARi would like to sign the MoU at the Cop 17 with the UK, Germany, European Industrial Bank and Norway to cement the design partnerships and agree on a model - legitimate costs, their contribution versus the South African contribution. SARi hoped that within the next year a deal around the flow of funding between South Africa and partners would be concluded. What was important for the industry was that the power purchase agreements were honest, the procurement process would be fair and that operations would be viable. The ISMO Bill would not necessarily be able to provide that reassurance.
Mr Ross asked if the ISMO Bill would have an effect on pricing for renewables.
Mr Smith asked what how the SARi staff component was contracted.
Mr Ritchken replied that the project manager from WWF had been on a full time contract for six months and all other staff worked on a part time basis.
The Chairperson was concerned that if SARi was not a government entity, it would have a problem signing a MOU at Cop 17.
Ms Thandiwe Maimane, Chief Director of Communications; Department of Energy added that the Inter Departmental Project Steering Committee for SARi had the strong view that SARi would be housed in the DoE which had the mandate over all energy sectors, including renewable energy. The DoE would be signing the MOU.
South African National Energy Research Institute (SANERI) Annual Report Highlights
Mr Kevin Nassiep, Chief Executive Officer: South African National Energy Research Institute and South African National Energy Development Institute (SANEDI) presented SANERI’s Annual Report 2010/11 to the Portfolio Committee on Science & Technology and the Portfolio Committee on Energy. SANERI’s mission was to transform the energy research and development sector by ensuring a culture of innovation was maintained in the development of technology-based products and solutions and by strengthening the human capital component.
The Carbon Storage Atlas had been published and distributed to depict South Africa’s potential for storage of 400 million tons of CO2 per year, both inland - primarily in the Karoo Basin, and offshore. The Carbon Atlas was not designed as a long-term solution but to store CO2 until renewable energy provided a sustainable solution to CO2 emissions and while there were continued to be strong drivers for the use of coal for energy. The Wind Atlas had also been produced together with CSIR to depict the three wind regions in the country. The reason for not having wind turbines offshore was that it was too costly due to the depth of mooring the turbine. However, due to new breakthrough technology, the South African Wind Energy Centre had proposed to consider the possibility of floating wind turbines in the ocean.
The African Energy Efficiency Centre was an initiative together with international partners and CSIR to look at good practice in energy efficiency and also at the application of technology on the African continent.
SANERI was working together with Eskom on a position paper to establish key areas for strengthening the grid to be able to absorb various resources onto the grid. The supply type and consumer request would influence the resource options that would be made available on the grid.
The Centre for Carbon Capture and Storage (SACCCS) Steering Committee had approved implementation of SANERI’s work plan and Sasol was voluntarily participating in research in Norway examining various carbon capture technologies. Transportation of carbon via pipeline, tankers, boat or land and injection into aquifers to underground reservoirs were further processes which were being examined. The test injection phase 2016 would cost between R4 million to R5 million would offer a projection as to whether to proceed in the direction of carbon storage.
Centre for Energy Systems Analysis and Research was a partnership between SANERI, University of Cape Town and University of Pretoria to support the Departments of Science & Technology and of Energy and to ensure that they had access to necessary energy information database for the DoE.
The Green Transport Programme in Midrand was fully functional and funded by DST and Department of Transport. A key project was the collaborative pilot project with SANTACO, Blue IQ and the Automative Industrial Development Corporation (AIDC) which analysed energy efficiency of mini-bus taxis using LPG and petrol.
A Compressed Natural Gas filling station had been established in Langlaagte in collaboration with the Department of Transport and the private sector examining use of gas and petrol or gas and diesel in metro buses.
The Working for Energy Programme (WFE) had expanded from the initial Working for Water Programme (Agriwaste to Energy) to include other natural resources such as biomass from animal waste, solar, micro-hydro and any energy which could support a community with sustainable energy. WFE played an important part in job creation as well as understanding energy components for REFIT.
SANERI’s funded research project findings were delivered at two international and to local conferences and four SANERI research articles were published in international peer-reviewed journals.
Financial performance had exceeded expectations and the full budget had been used. An issue around whether SANERI would be liable for outstanding VAT from 2010 and preceding years would be decided by SARS in the current year.
Ms N Mathibela (ANC) asked if animal dung for generating gas was a sustainable source of energy and if it would be exportable.
Mr Nassiep replied that while DST was in control of the fundamental Type 1 research and development, SANERI held a close partnership with DST and interacted with various structures on the renewables concept. SANERI was responsible for how renewables could be applied as a sustainable and commercially viable gas or electricity energy source, both in rural and urban areas.
Ms P Mocumi (ANC) commented that the predetermined objectives were not well-defined in the Annual Report and that they had no time frame for measurement of performance.
Mr Smith said that while the performance against the objectives set by the Directors of the Board appeared to meet targets, the Auditor-General had indicated a number of problems around the format, structure and measurable targets.
Mr Nassiep replied that the R&D environment was generally difficult to bind time-wise. In the current year, Ernst & Young had assisted with making the key performance indicators time-bound and measurable and the AG in the past month had given the green light on the key performance indicators and had requested a manual in order to understand the various technologies on which it should audit.
Outstanding issues that still needed to be addressed were: the Renewable Energy Centre for Research and Development (RECORD) had to be established in the current year – the Centre Manager had been appointed and had commenced work the previous day and was set to proceed on the Centre with the available budget; the Smart Grid required proposals from key stakeholders and Parliament’s response to the position paper; and the institutional arrangement of R&D in the country required alignment – aside from being a funding agency, SANEDI had in-house R&D and technological capacity.
Ms Mocumi asked for clarification on the irregular, wasteful and fruitless expenditure and the accounting authority of the entity not complying with PFMA requirements.
Mr Nassiep replied that the only accounting issue that was irregular was a late payment by CEF Group to SARS relating to leasing of premises in Midrand. The issue had been cleared by the Auditor-General.
Ms Shinn asked why SANERI existed and if SANERI added value to all the collated research performed elsewhere, or if it simply created jobs to compile Green reports.
Mr Nassiep replied SANERI had two broad objectives: to develop a National Energy R&D strategy (which was never approved by Cabinet); to develop human capital for energy, with the exclusion of NECSA and PBMR; and to maximise commercialisation of key energy projects for the benefit of society. It had added value in terms of the research for carbon-capture storage - funding partners, nationally, internationally and private partnerships and commercial issues around the four potential geological storage sites; the Wind and Carbon Atlas; and interaction with other geological departments and international partners on those issues.
The Chairperson commented that when SANERI was first introduced it was to be housed as part of CSIR. The Minister had suggested that SANERI should be taken out of CEF and moved to SANEDI to address all components of energy.
Mr Smith asked why SANERI was not part of the plethora of institutions conducting and promoting research and why it was established as a private company under CEF and not a non-profit organisation or agency.
Mr Nassiep explained that the Departments of Science & Technology, Education, Trade & Industry and Minerals & Energy made up the bulk of the committee that was set up to establish SANERI. They looked at different models: Eskom was focused on electricity rather than renewables and the CSIR was not in a position to protect energy and thus were not in line with the purpose of SANERI. DoE then proposed that SANERI should be established under the CEF Act which made provision for undertaking research and development (R&D) on behalf of CEF. This was the basis for the directive by the Minister that SANERI should be established under CEF Group as a R&D arm, but as a wholly-owned subsidiary. Although CEF was a parastatal entity, it was registered as a PFMA schedule II company for profit, even though it was not a profit-making entity. This caused confusion and was also why DoE had subsequently established SANEDI, although it continued to share CEF support services due to ongoing funded contracts.
Mr Greyling asked what role SANERI played in development of the IRP and how it would be involved in the Integrated Energy Plan (IEP) in terms of providing modeling capacity.
Mr Nassiep relied that SANERI did not play a real role in modeling IRP but it had provided in-house technical input for IEP and would have a role to play in assessment and usability of modeling tools as well as human capacity to man the tools.
Ms Shinn said that she assumed that SANERI would be supported by the Energy Grand Challenge (EGC) over the medium term framework, but she found that it was not listed in the EGC, nor in DST’s national expenditure for the following few years. She asked how SANEDI was supported.
Mr Nassiep replied that the R80 million allocated to SANERI was converted to the Energy Grand Challenge. SANERI‘s R98 million operational budget was made up of a DoE primary grant (R20 million), R25 million for WEF and the balance came from DST, CEF (R28 million loan) and private sector and foreign donors.
Mr Greyling said that according to the financial statement, very little funds were devoted for research. The role of the institution, its relationship to other research institutes and how it operated and funded research required in-depth review.
The Chairperson added he was concerned that the energy agencies were not aligned correctly under the National Energy Act and this would need to be addressed. Furthermore, according to the Act, SANEDI should govern all components of energy in South Africa and the budget for funding the institution should be aligned to its function.
Mr Smith asked how DST interacted with DoE on steering SANERI.
Mr Nassiep replied that SANERI interacted with the DST regularly and with DoE on a quarterly basis through the compliance office. Its Energy Efficiency hub was a functional Committee at the University of Pretoria and the Committee included the DST which facilitated interaction with other Departments to ensure SANERI performance objectives were met.
Mr Greyling said that the projects appeared to be once-off projects. He expected to hear about SANERI’s role in addressing the findings and challenges found in the research on energy resources - how to operationalise, commercialise and mainstream technologies into the South African economy. He also expected SANERI to make suggestions on how the Smart Grid would overcome the challenge of the institutional arrangement whereby municipalities made most of their income on energy sales.
He asked if SANERI was looking at storage of energy as this would be vital if there was to be a massive deployment of renewables.
The Chairperson asked if a safety assessment had been conducted on carbon storage.
Mr Nassiep replied that storage of energy was a vital component of SANERI’s work. Some of the programmes on energy storage research included working together with the University of Cape Town, University of Stellenbosch and CSIR. In agreement with CEF, funding for carbon-capture storage had been transferred from SANERI to SANEDI with support from National Treasury. Additional funding for carbon-capture storage, WEF and transport issues for SANEDI could be presented to the Committee at a future meeting.
Ms Plaatjie asked how students were identified and how they qualified for bursaries and whether post-graduate bursaries were awarded.
Mr Nassiep replied that SANERI set out specific schematic areas and then invited universities in those areas to nominate suitable candidates as recipients for bursaries. Demographic specifics were that 85% of candidates had to be historically disadvantaged. The bursary programme had been handed back to DST. Currently SANEDI was handling the Energy Efficiency and Carbon-Capture Storage bursary programmes and would like to expand bursary programmes to accommodate bursaries in the Renewable Space and the Smart Grid environment in future.
The meeting was adjourned.
- We don't have attendance info for this committee meeting
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.